The founder of Binance will spend four months in jail

Changpeng Zhao, the elusive founder of Binance, the world’s largest cryptocurrency exchange, received a four-month prison sentence for failing to implement proper anti-money laundering (AML) controls. Zhao, who pleaded guilty in November 2023, prioritized “explosive growth over compliance,” according to Judge Richard Jones.

Read: Google is now a $2 trillion company

While unlikely to re-offend, Jones emphasized the severity of the offense. Though less notorious than Sam Bankman-Fried, the disgraced FTX founder, Zhao holds a more influential position, having built Binance into a crypto behemoth in 2017. Despite stepping down as CEO as part of the plea deal, Zhao remains the company’s controlling shareholder. Critics, like one anonymous source quoted by Bloomberg, label Binance a “massive shitcoin casino” due to its aggressive listing of obscure cryptocurrencies compared to competitors like Coinbase.

Prosecutors sought a harsher sentence – three years – citing the “monumental scale” of the violations and the damage to US national security. Their memo outlined how Binance facilitated over $898 million in transactions in violation of sanctions and “repeatedly broke US law, especially the Bank Secrecy Act.” This laxity allowed Iranian customers, along with those from sanctioned nations like Cuba and Syria, to conduct illegal transactions with US users.

In contrast, Zhao’s defence argued against any jail time, citing a lack of precedent for imprisonment in similar AML cases. They lauded Zhao’s voluntary travel from his home in the UAE to plead guilty and his five-month stay in the US, away from his family. They also emphasized Binance’s efforts to rectify its AML shortcomings.

Within the crypto community, Zhao’s reputation as a maverick willing to disregard US regulations precedes him. In 2022, tweets exchanged between Zhao and his rival, FTX’s Sam Bankman-Fried, exposed a simmering feud. After Bankman-Fried expressed (and then deleted) excitement about Zhao representing the industry in Washington, D.C., Zhao retaliated by selling a significant amount of his FTX holdings following a negative report. This public display of aggression is believed to have triggered a run on FTX, ultimately leading to its collapse and Bankman-Fried’s subsequent 25-year prison sentence.

While the $50 million fine levied against Zhao is a mere drop in the ocean compared to his estimated $33 billion fortune, the prison sentence signifies a turning point. The message to crypto exchanges is clear – neglecting AML compliance can lead to severe consequences. With Zhao behind bars, Binance will have to navigate the future under new leadership and with a tarnished reputation.